18 / 2017 Annual Report Annual Report 2017/18 Contents Saman Bank in 2017/18 Statement of the Board and the CEO ............................................................................ 5 Key Figures .................................................................................................................... 7 About Saman Bank ........................................................................................................ 8 Saman’s position in the Securities and Exchange Organisation .............................. 12 The Bank’s Legal Environment .................................................................................. 12 An Overview of Saman’s Operational and Financial Performance ........................... 14 Resource and Expense Analysis ................................................................................. 19 Major Achievements of Bank in Different Areas ........................................................ 22 Corporate Governance ................................................................................................ 34 Senior Executive Team ............................................................................................... 37 Division Heads ............................................................................................................. 38 Independent Audit ....................................................................................................... 38 Human Capital ............................................................................................................. 39 Saman Bank in 2017/18 Risk Analysis ............................................................................................................... 44 Major Accolades and Achievements in 2017/18 ......................................................... 46 Saman Financial Group ............................................................................................... 47 Plans and Projects for 2018/19 ................................................................................... 48 Financial Reports Independent Audit Report ........................................................................................... 50 Consolidated Financial Statements of Saman Group ................................................ 54 Financial Statements of Saman Bank (Public Joint-Stock) ...................................... 60 Explanatory Notes ....................................................................................................... 67 Statement of the Board and the CEO The financial year 2017/18 began with significant hopes for the Iranian economy and banking system, following the unfolding effect of the JCPOA in 2016. In the light of positive signs from negotiations toward the end of 2016/17, we at Saman carried out necessary measures to strengthen our infrastructural, technical, and operational capacities to adapt fully to the required standards of international financial transactions and to anticipate international dealings at the desired levels as soon as the sanctions are lifted. Our collective measures focused on expanding our international correspondence network and optimizing the operational structure of the bank under our new strategy. Through this new strategy, the board reviewed and improved the bank’s infrastructures in order to develop international relations, optimise risk management, and promote and coordinate compliance and anti-money-laundering structures in accordance with the latest international standards. At the same time, we strove to improve the joint revenue structure and concentrated on the bank’s investments in view of the serious restrictions imposed on joint revenues from lending. | International Strategies at Saman The removal of sanctions could be viewed both as an opportunity and a potential threat for Saman. That is, it could open new opportunities for market development and improve the bank’s speed and quality of service, or it could introduce new rivals who may be entering the international banking service market. These new conditions prompted us to pursue even more extensively and diligently our plans to achieve our key goal: “To become the first-choice banking partner for overseas banks.” Saman’s international strategies can be divided into two major groups: Firstly, we seek to retain the existing correspondent banking relations and develop new relations as far as possible. Secondly, we strive to develop foreign exchange operations and shift from engaging in short-term international trade operations to financing national projects eligible for credit lines provided under JCPOA. In view of our expertise and experiences, we have entered into agreements with all countries providing credit lines, including China, India, Italy, Austria, Denmark, and France. As a result, we increased our foreign currency operations to a record $6.4 billion, which shows a 35% increase compared to the previous year’s revenue in foreign currency above the planned target. A Saman representative office was opened in Rome, Italy, and we have applied for a license to open a branch in Frankfurt, Germany. Our office in Rome is now active and serves Italian exporters and Saman’s correspondent banks. Our branch in Frankfurt has been equipped and is awaiting the legal paperwork to complete its licensure. Another important principle at Saman is ongoing staff training and career development for all levels. Saman Academy has designed and offered RBA, MIM, and DBA training courses with the cooperation of renowned international institutions and universities. | Guidelines for Optimizing Operational Structure under the New Strategy We commissioned our new strategic plan, Horizon 2021, with the aim of optimizing business procedures in 2017/18 in order to offer our customers a new style of banking. Through the development and promotion of this plan, we sought the top international advisors in order to leverage the latest global knowledge and experience in business change management. The four axial approaches in our strategic plan include: • Restructuring retail banking and SME banking units to maximise profitability and concentrate on the added value chain of the economic actors in our target market (food and medicine); • Restructuring banking in order to reduce claims ratio and optimise the sale of repossessed assets; • Expanding and developing corporate banking units in view of optimal credit risk and liquidity risk measurement and management; • Expanding and developing infrastructure related to compliance rules and standards, anti-money-laundering efforts, and financial crime control. In light of the importance of credit risk, we made efforts to adapt our risk management and control models to the international models in order to comply with standard procedures in our international commercial transactions. Through optimizing our organisational structure and assembling an executive team of compliance and anti-money-laundering units based on the advice received from top-notch international advisors, we worked toward maximum trust-building and transparency in our banking operations with our international counterparts. This project will continue into 2018/19 as well. The first comprehensive software for this purpose is being localised and will be operational in 2018/19. 4 Annual Report 5 In spite of fluctuations in the exchange rate and deposit interest rates, especially during the second half of 2017/18, Saman continued to play a major role as a lender in the interbank market. This achievement was made possible by establishing a balance between resources and consumptions, which was one of the most important policies adopted by the Board. The illogical gap between deposit interest rates and lending interest rates in financial year 2017/18 continued to adversely affect the bank’s joint revenues. As this trend is predicted to continue in the future, the Board undertook the following measures to safeguard and grow the value of the bank’s assets and protect shareholders’ interests: First, we prepared the Saman Electronic Payment Company to enter the Stock Exchange as one of the big start- ups in payment services in Iran. We also established Saman Holding in which all of our affiliated companies could be highlighted in a single portfolio and whose shares could be offered in the Stock Exchange as advised by the Central Bank of Iran. The outcome has been a more profitable investment portfolio. Next, we separated the profitable and no profitable sections of the bank’s assets to allow more precise management of revenues and expenses. This decision helped us improve procedures in the no profitable section and increase revenue, especially from the sale of repossessed assets. Under the long-term strategy of the bank, we continued to offer domestic companies in the food and medical industries different services such as financing development projects, provision of revolving funds, and loans for the purchase of commodities. In order to strengthen our strategic approach in offering service to the added value chain, we tried to identify active chains in food and medicine and to target production, distribution, and sale procedures with particular attention to food, medicine, and home appliances, directing our support toward optimizing the financing cash flow for these economic sectors. The collective efforts of our colleagues across all departments have resulted in many achievements in different areas. Saman’s Customer Complaint system obtained ISO certification, and Saman’s position